Let the 'Dreaded' Sequester Begin!

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Today will mark the end of the bantering on the dreaded sequester issue, and begin a necessary reversion back to economic fundamentals driving markets that have been distracted from achieving their natural equilibrium. Markets will get to move forward somewhat free of the political distortions and deliberate tactics promoted by the Obama administration to deflect responsibility for a policy of automatic spending cuts it originated and supported with the President's blessing.

With Equities nearing all-time highs, the markets are preparing for an immediate 5% short term correction as a means to test the validity of this powerful bullish march forward, and eliminate some risk premium in advance of the uncertainty that sequestration threatens. The European political theater with a surprising outcome in Italian elections will be another demonstration that blunts austerity measures and Germany's benign influence to inject EU fiscal standards. Japan's Abe government appoints staunch allies to guide his massive stimulus policy with Kuroda as the new head of the BOJ to lead the bold mandate towards export driven growth and reflationary hopes with USD/JPY 100 and beyond, although competitive trade opponents in the region may limit Japanese efforts to sabotage their own currency.

U.S. Equities along with the U.S. Dollar will compact to lower levels, U.S. Treasury yields will fall in line, and safe haven flows to commodities will prevail as further allocations to risk assets will be reevaluated to reflect the collateral damage in the aftermath of this most recent political storm. The latter continues to weather the public and hinders continuity in a recovery marked by inadequate growth, and false support in the form of QE stimulus. Today's positive consumer sentiment, employment news and growth in manufacturing have to reassert themselves as the fundamental building blocks that convincingly support the economic prospects of a sustained ascent that also endorses the case for stable FX valuation. Currencies should move free of intervention and based on real economic fundamentals, as opposed to artificial lurches rooted in artificial markets.

The aforementioned prediction of a 5% pullback and brief recess from buying may help provide a 5% discount for the next trajectory that leads to record highs and the resurgence of fund flows that fuels another round of corporate earnings and price gains. Or, this could be a pause in front of a collapse if encumbered once again by the crippling forces of liberal motivations to restore excessive spending programs, and redistributive policies for increased "revenues" and "investments" for the tax and spend authorities in the dank halls of big government.

In short, Let the sequester begin to end the clamor of hysteria and release the natural selection of economic forces that lead us out of the political quagmire the Obama administration relies on to divide and frustrate legislative representation, and diminish the effectiveness of constitutional process.

Joseph Sabbagh is chief executive officer of JVS Capital Managment, LLC. Previously he was managing director at Nine Thirty Capital, executive director at Morgan Stanley, and a vice president at Goldman Sachs for tens years during which he worked in the investment bank's fixed income and wealth management divisions.  

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